Why Casual Games Won’t Kill Hard-Core Gaming

The gaming industry has long been dominated by franchises with hardware-crushing graphics, hundreds of hours of tightly scripted gameplay, and multiyear development budgets of $50 million or more. But now the hottest titles are mobile or Facebook games that took a couple guys a week to knock out. Does Z-Y-N-G-A spell “game over” for big gaming?

Clearly, something is changing. On April 26, Nintendo reported its first quarterly loss in 30 years. On the same day, Electronic Arts’ CEO John Riccitiello went on NPR’s California Report to paint a grim picture of the future of “hard-core” gaming. With soaring costs and long lead times being exploited by “casual” gaming upstarts, industry’s oldest hardware-maker and its biggest publisher are in trouble.

But is casual gaming eating hard-core gaming’s lunch, or are they completely different meals? To answer that question, we need to ask another: “What the hell is ‘gaming,’ anyway?”

Nintendo Needs a Plumber

Nintendo is facing a reality Sega encountered more than a decade ago: Unless you’re Apple, vertical integration doesn’t work. In the gaming business, hardware vendors subsidize their consoles in the hopes that they’ll sell games. If the consoles or games aren’t popular, they lose.

It’s a testament to Nintendo’s savvy and branding that it stayed profitable for this long, but Wii sales are slipping, the DS3 is failing to gain traction and armies of gamers on other platforms are missing out on its signature franchises. Nintendo may need to start moving past its hardware focus. Nanako Imazu, a Tokyo-based analyst at CLSA, told Reuters that to stay in the game, “Nintendo has to deal with the change and let Mario games be played on non-Nintendo devices.”

Big is Beautiful

Nintendo may be having hardware issues, but what about EA, the largest third-party publisher of video games in the world? It doesn’t make hardware and supports just about every platform avialable. Are its recent financial issues the result of a creeping death in traditional gaming?

According to Billy Pidgeon, Senior Analyst at M2 Research who has also helped produce more than 20 video games, the lavish, high-budget blockbuster still has legs. “I think there will always be an audience for hard-core games, particularly for the online multiplayer category.”

Need an example? Try Blizzard Entertainment, producers of World of Warcraft – the most successful video game of all time. It’s generated an estimated $10 billion in revenues since its launch in 2004 (more than three Avatars), and while its numbers have ebbed lately, WoW still has roughly 10 million paying subscribers. Expectations are equally high for Blizzard’s next two titles: Diablo III and a still-secret, 90-developer project, code-named “Titan.”

Blizzard is hardly alone. Microsoft’s Halo 3 pulled in $170 million in its first 24 hours. Rockstar’s Grand Theft Auto IV stole $500 million in its first week.

Increasingly though, it’s all about a few really big hits. And large, expensive projects are always a gamble: BioWare’s Star Wars: The Old Republic – published by EA – hit 1 million subscribers in three days but still received a rough reception from some analysts. Still, there’s no denying that plenty of hard-core gaming companies are more than getting by.

Small is Big

Big games may not be dead, but casual, social games definitely have the momentum. Zynga, casual gaming’s 800-pound gorilla, reported 182 million monthly unique users in Q1 2012, up 25 percent from last year. While most of those users aren’t paying to play, there are plenty of ancillary revenue opportunities in the form of advertising, in-game purchases and upgrades. With its production engine and Facebook’s social network providing a backbone, Zynga can pump out new-but-familiar games in a matter of weeks, keeping well ahead of its users.

So casual games are massively profitable, but should EA be scared of Zynga? Only if Grand Theft Auto and Words With Friends really compete. And that might be a bit of a stretch.

On some level, there are only so many leisure minutes in the day, and as Pidgeon points out, gamers will cross genres in some circumstances. But a deeply immersive, high-skill game like Halo is as likely to compete with watching movies or playing football in the park as it is with an online word game.

Pidgeon sizes the long-term market for hardcore games “in the tens of millions” of users. That’s not the “accessible worldwide market in the hundreds of millions” available to Zynga, but hard-core users pay, and they generate more than enough money to keep the industry viable.

So What Is Gaming Now?

The definition of “gaming” is getting fuzzy. Once upon a time, when video games existed only in arcades and on home gaming consoles, life was simple. Then the Internet added targeting, socializing and advertising to our procrastination impulse, and modern casual gaming was born. Two paradigms, and two different markets, lumped under a single word.

Those distinctions could be about to get a lot more jumbled.

Jim Ying, the senior VP of publishing at the social game publisher 6waves, sees “a complete blurring of lines as to what is a social game and what is a hardcore game” as console/PC platforms enable social hooks, and alternative devices become more powerful.

At least in the near-term, Pidgeon sees “rapid growth in the ‘mid-core’ category of more challenging games (Kabam’s Dragons of Atlantis, Kixeye’s Battle Pirates) for mobile, PC and social networks.” Whether we’re in for a blended spectrum or a number of distinct categories, the gaming world is going to be a lot of things to a lot of people, and that’s not necessarily helpful.

John Riccitiello summed up the real reason behind EA’s initiative when he said “We would like to be No. 1 in every possible area, in every geography.” It’s not that old-style gaming is dead. It’s just that “gaming” means a lot more now, and EA wants to own it all.

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